5 Fast Facts About the Boring S&P 500
2017’s been a nutty year. It’s been a remarkably sleepy year, with the S&P 500 grinding up at a snail’s pace despite growing geopolitical tensions, stretched valuations, and an endless flurry of headlines out of Washington courtsey of President Trump. So I dumped 9,438 trading days worth of data — going back to January 3, 1980 — to give you a numbers-based breakdown of just how weird 2017 is. 1) 1% Days The S&P 500 has moved 1% or more in a day only 4 times in 2017. In 2016, we had 4 daily 1% moves by January 8! And before 2017, the market had 1% daily moves on average 63 times a year! 2) Up Days and Down Days In 2017, 54.7% of all trading days have been up days. While it’s felt like the market only goes up a little bit every day, this is only slightly above the pre-2017 average of 53.1%. 3) Intraday Volatility I calculate a day’s trading range with the following formula: High minus low, divided by the prior day’s close. So if the S&P had a 20-point difference between its high and low, and the prior day’s close was 2000, the range would be 1%. The average daily range in 2017 has been 0.6%. This is less than half the pre-2017 average of 1.3%. That means intraday movement is running at less than half the long-term average. 4) Average Daily Move On average, the S&P has moved only 0.3% per day in 2016. This is dramatically lower than the pre-2017 average of 0.8%. So if you’re falling asleep watching the major averages, you’re not alone. I write about the major averages every day, and my daily mission is now “find an interesting way to say nothing happened!” 5) Finishes Near the Highs of the Day For my final piece of analysis, I wanted to see if the S&P 500 has tended to finish closer to the highs of the day. So I looked for days where the S&P 500 finished in the top 1/3 of the daily range. (the high minus the low). We have had 106 trading days through Monday, and the S&P 500 finished in the top 1/3 of the range 54 times. That’s 51%. Pre-2017, the S&P finished in the top third of its range just 42% of the time. ******** The takeaways are simple: 1) The S&P 500 is not moving intraday 2) The S&P 500 is not moving day-to-day 3) Judging by the trend for us to finish near the highs, it doesn’t seem to pay to short the market intraday. 4) If you’re looking for action, focus on hot momentum stocks… not the indices and related ETF’s!
Continue Reading -->The Sub-10 VIX Is About to Set a Crazy Record
Min Zeng of the Wall Street Journal just Tweeted a very interesting stat about the VIX: $VIX at 9.75, on pace to close under 10 for the seventh time this year–the most ever. I double-checked the data and indeed, Zeng is correct. But taking a deeper look at the data (my data set goes back to 1990), things get even more bizarre. All 6 of 2017’s sub-10 closes in the VIX happened on May 8 or later. (remember, today’s would make lucky number 7) And if get another sub-10 close, that would mark 5 in the past 7 sessions. Since 1990, the VIX has NEVER closed below 10 in 5 out of 7 sessions. So it’s on the verge of a truly incredible record. Already, the VIX has finished under 10 in 4 of the last 6 sessions. This has only happened 3 other times since 1990. Those 3 other occurences were on 12/28, 12/29, and 12/30 in 1993, during a streak when the VIX had 4 straight closes below 10. So the post-election collapse in volatility truly is remarkable. Now let’s take things a step further. Prior to May 8, 2017, there were only 9 sub-10 closes in the VIX. That’s right. Just 9 out of 6,891 trading days — or 0.13% of the time. And now we’re going on 5 in just 7 days — or 71%! This looks insane, but let me explain why it’s perfectly logical. The VIX represents expected volatility. And when actual market volatility goes to near-zero — as it has since President Trump’s victory — the VIX follows. Therefore, the VIX’ behavior is entirely logical. Anecdotally, I’ve been hearing a lot of traders chat up long positions in VIX-related instruments like VIX calls or VXX calls, or plain old SPY/SPX options. I’ll just leave you with one of the great all-time market one-liners: “The market can stay irrational longer than you can stay solvent.” -John Maynard Keynes 2017 has been BRUTAL to traders betting on a rebound in volatility. You can know why it should happen, but you had better know when, or else you’ll be eaten alive by time decay, one penny at a time. So if you’re going to put your chips down… be very careful.
Continue Reading -->Weekly Sentiment Update: The F.O.M.O. Train Is Unstoppable… for Now
Permabulls always say everyone’s bearish. And permabears always say everyone’s bullish. But let’s look at the actual numbers to see how the crowd actually feels. Last week, we saw traders show less more fear after the SPX broke to new all-time highs. And the question I asked was whether we were set for a F.O.M.O.-driven ride up to SPX 2500. With markets still clawing higher, it looks like the answer is yes. So let’s take a fresh look at our 5 primary sentiment indicators to see if the ride towards 2500 has made the bulls overconfident. (click here for a primer on them) 1) VIX Spread – Bullish The VIX dropped as low as 9.65 Friday, putting it within range of the the 9.56 generational low on May 9. A couple of weeks ago, the VIX curve nearly inverted, but the 3-month curve is at +3.7, indicating traders are not pricing in much near-term volatility. Or in plain English, folks are bullish. 2) CNN Fear & Greed Index – Neutral The Fear & Greed Index is at 59, up from 56 last week. F&G operates on a 1-100 scale, and a reading of 59 is pretty much neutral. 3) AAII Sentiment – Bearish The latest AAII Sentiment Survey shows that 26.9% of individual investors are bullish. This 26.9% reading is well below the 38.5% long-term average, and implies that individual investors do not trust this bull move. 4) CBOE Equity Put-Call – Bullish The CBOE Equity-Put Call ratio was at 0.66 yesterday with a 3-day moving average of 0.66. This is above historical averages. 5) ISE Sentiment – Neutral The ISE Sentiment Index was at 84 Friday afternoon (84 calls bought for every 100 puts). The 10 day moving average is 89.3. These numbers show higher put demand, but they’re actually in-line with recent averages, so I’ll also lump it in as neutral again. Conclusion Out of 5 sentiment indicators, we have: 2 bullish 2 neutral 1 bearish So these numbers are unchanged from last week. The question to ask is whether we’re on the verge of outright forth. Last week, I said no. This week… I’m saying maybe. The AAII Sentiment Survey indicates that individual investors are pretty skittish. Typically, at tops, you see the masses wanting to get in. One possibility is that the tense geopolitical climate is preventing investors from getting too bullish, even though volatility has gone to basically nothing since the election. And the CBOE equity-put call doesn’t show rampant demand for call options, another thing we typically see at market tops. Therefore, I think there’s a reasonable chance we charge past SPX 2500 in the next couple of weeks as shorts throw the towel in, unable to withstand the bulls’ painfully slow push higher. And at that point, perhaps crossing a major round number like 2500 really gets the bulls overconfident, setting the stage for a drop. But for now, let the relentless post-election bid teach you an important lesson: the trend is your friend. And it can be your friend for a lot longer than may seem reasonable. So if you want to bet against it, have a really good reason. I’ll end with a tip: if you’re reason is “what goes up must come down,” go back to the drawing board!
Continue Reading -->What You Don’t Know About Prop Trading… but Should
In this special extended webinar, Amber Capra breaks down everything you need to know about the exciting world of prop trading: Amber covers the world of prop trading from A to Z, including:How to determine whether prop trading is right for youWhy you need training, community, and ongoing coaching to succeedHow you can qualify for 100% tuition reimbursement in our prop programThe different licensing requirements for US and non-US tradersDetails about different trading platforms, including Fusion and LightspeedHow profit splits workHow much capital you need to get started as a prop traderRisk management techniquesWhy you need a ‘Forced Discipline’ risk management programWhether or not you can prop trade on a part-time basisTips for avoiding pitfalls that can hurt your trading careerHave a question about prop trading? Call 1-888-998-3548 or email us at info@t3live.com Learn About Our Omega Prop Program
Continue Reading -->Why You Need a Trading Checklist
Checklists can save your life. Literally. Anesthesiologist Peter Provonost studied how 100 Michigan hospitals inserted central lines (also known as intravenous tubing) into patients’ chests. . Central lines deliver lifesaving medications, and proper installation is critical for avoiding life-threatening infections. 30% of the time, surgical teams skipped 1 of 5 essential steps in the process. But by using a simple checklist, the infection went from 4% to zero, saving 1,500 lives and nearly $200 million. That’s not all. Checklists keep planes in the air. Checklists keep nuclear power plants operating safely. And checklists can keep traders like you avoid simple errors that can cost you money. Here’s a simple checklist you can use to avoid errors when they’re most likely — the order entry process. Before we get to the checklist, make sure your trading platform is set up in a way that works for you. For example, many trading platforms let you set defaults for trade parameters including share size. You can also often set little things like how your mouse interacts with the platform. Depending on your settings, you could even place orders with a single mouse click. And set your chart time frames in a way that corresponds to your actual trading. Since all platforms allow you to save your screen layouts, keep yours saved so you can always go back to square one. So take a half hour and go through your platform’s default settings. This will reduce the risk of placing accidental orders, or of accidentally looking at the wrong charts. Now let’s take a look at an actual order entry checklist that can prevent you from making errors: Step 1: Ask Yourself If You Have a Good Reason for Making This Trade Since they’re constantly bombarded with news, data, and ideas, traders are always tempted to act impulsively. You can counteract this tendency by asking yourself: do I have a good reason for doing what I’m about to do? Often, that will be enough to stop you from getting in bad trades. Step 2: Form an Entry and Exit Plan If you’ve got a good reason to make a trade, now it’s time to decide on an entry and exit plan. Know where you want to get in, and where you want to get out. You should have a stop loss to minimize downside risk, and a target price that gives you room to make a solid profit. This will prevent you from getting in a trade, and then asking “so what do I do now?” Step 3: Double Check Your Ticker There are two types of “fat finger” trades. That’s what happens when a trader hits the wrong keys on the keyboard, and a whole lot of money ends up in the wrong place. In 2015, Deutsche Bank’s foreign exchange desk accidentally sent a hedge fund $6 billion because of a simple typo. If you’re not watching carefully, you could very easily buy Advance Auto Parts (AAP) instead of Apple (AAPL). You could mix up Agilent (A) and Alcoa (AA). Or Dominion Energy (D) and Dupont (DD). Step 3: Double Check Your Share Size Let’s say you want to buy 100 shares of JP Morgan (JPM) at $80. That’s $8,000 — a decent chunk of change. But what if you accidentally pop in another zero, and buy 1000 shares? Well, you just made an $80,000 trade. That’s an an extra $72,000. And if the stock suddenly drops $2, you’re down $2,000. Had you bought just the 100 shares you wanted, you’d only be down $200! Step 4: Double-Check Your Expirations and Strike Prices on Options and Futures If you’re trading any instrument with an expiration date, like options or futures, you must absolutely double-check the expiration dates of what you’re trading. You’re often looking at dozens or even hundreds of small numbers on a single computer screen, and it’s easy to make mistakes. Make sure you select the right the expirations and strike prices. This is especially important if you’re entering an order with multiple legs. You may fool yourself into thinking you’ve found an especially attractive calendar or butterfly spread, when in fact, you just got ripped off! Step 5: Perform a Post-Mortem Analysis of Your Best and Worst Trades We recommend that traders keep a diary of their trading activities so they can accurately track their trading history. We’ve found that this piece of advice is mostly ignored. If you’re not willing to take this step, at the very least, do after-the-trade breakdowns of your best and worst trades. Was your rationale for the trade correct? Did you get lucky? What could you have done better? How did you know when to get out? Be honest with yourself, and you’ll start to understand your true trading nature.
Continue Reading -->The 7 Deadly Sins of Trading, and How You Can Cure Them
Greed, for the lack of a better word, is good. That’s what Gordon Gekko said in the classic 1987 film Wall Street. And indeed, a little greed goes a long way. Greed can push you to work harder to bring home a bigger paycheck. It can push you to save more money for retirement. But greed can also eat you alive… even if you have all the money in the world. Greed is only one of the 7 deadly sins you’ve heard about from religious texts or pop culture. And as you’re about to learn, they all apply to trading, and they all have cures if you understand them. Lust is often associated with sexuality. But there’s another kind… the lust for money and power at all costs. That’s a recipe for disaster for 2 simple reasons. An obsession with making more money can push you to take bigger and bigger risks. You’ll put yourself in harm’s way when there’s no good reason to. It can also push you to cross ethical and moral boundaries. Remember, once you cross that line, there’s no turning back. The Cure for Lust Replace your desire for money with a desire to learn. As you become a more skilled and experienced trader, you’ll likely earn more money. So focus on building your skills and gaining experience, NOT the potential rewards of skills and experience. It’s like dreaming about buying a Ferrari before you’ve even had a job. It’s downright childish. Grow up, get good, and the rewards will come. 44% of lottery winners go broke, according to a 2015 study by the Camelot Group. Why? Because most people can’t handle sudden wealth. Traders are no different. Once a trader achieves financial success, he’ll be tempted to overindulge in everything from food to clothes to travel to cars to real estate. An upgraded lifestyle means upgraded living expenses So what happens when that trader has a bad month or bad year? Panic, frustration, and inaction. When the mortgage is due today and there’s just $28.71 in the checking account, it’s pretty dang hard to focus on the charts. The Cure for Gluttony As you earn more money, save a higher percentage of what you take home.. Let’s say that after a year of trading, you have $25,000 left over when all your taxes, trading expenses, and bills are paid. And let’s assume you feel comfortable spending $7,500 of that on “fun stuff” like new clothes, travel and entertainment. That’s 30%. On your next $25,000, take it down to 25%. And the $25,000 after that, reduce it down to 20%. The exact numbers don’t matter. The point is, by scaling down your spending, you’ll keep a safety net in place for the rough times. It’s okay to want a bigger house, a nicer car, and private school for your kids. And it’s okay to dream about having $10 million in your bank account. But if you’re trading just to make money to buy more stuff… go do something else. To become a great trader, you must love the process of trading. It’s not easy to stare at computer screens for 9+ hours a day, trying to make sense of news and charts and price action. Most people burn out from it. But the best of the best can’t pull themselves away! The Cure for Greed Revisit what you really love about trading. Is it the process of scanning through 200 charts to find the one that speaks to you? Is it the rush of adrenaline you get when you nail a trade? Or is it just plain fun? Your trading results are important. If they’re not, you shouldn’t be in this business. But it’s equally important to enjoy the process. So shift your greed for money to a greed for sheer enjoyment. Experienced traders often get nostalgic for the ‘good old days’ before high frequency trading, decimalization, and overactive central banks. Many of these traders run into trouble because they do more complaining than learning. Instead of learning new skills, they get left behind. Evolution is a cruel beast. And it comes for the weakest traders first, the ones that don’t adapt. It’s 2017. The strategies you use today may not work 3 years from now. What are you gonna do about that today? The Cure for Sloth Put yourself on a regular schedule for continuing education and personal development. Don’t give yourself the option of NOT improving. You could set a goal of reading 2 new books a month. Or learning 4 new chart patterns. Or writing out 3 case studies about your best — or worst — trades of the month. The possibilities are endless. And don’t forget about improving your non-trading self. Some of the biggest trading lessons are learned away from the desk on a racquetball court… or on a wild boar hunt in Texas. (seriously) An angry trader is one that just lost money, and is on the verge of losing more. If you’re angry, you’re impatient. If you’re impatient, you’ll make more bad trades. And if you make more bad trades, you’ll get even angrier. That’s when the ‘revenge trading’ starts. That’s when you lose $2,000 in the morning, and you’re determined to ‘make it up’ with more trading. Before you know it, you’re down $5,000. And then $10,000. And so on. And so on. The Cure for Wrath Clean up your mess as best you can. And then walk away from your trading workstation. Don’t come trade again until you have your anger out of your system. Talk to your buddies, watch a funny movie, or take a walk. But get it out of your system. And if you feel like you’re getting out of control too often, seek professional help. Anger won’t just hurt your bottom line. It will also destroy your body. On Wall Street, you can make $1 million a year and still feel poor. Why? Because the guy next to you made $2 million! Traders are competitive by nature. It’s no wonder so many love
Continue Reading -->Weekly Sentiment Update: Can We Ride a F.O.M.O. Wave to SPX 2500+?
Permabulls always say everyone’s bearish. And permabears always say everyone’s bullish. But let’s look at the actual numbers to see how the crowd actually feels. Last week, traders swung to a moderately bearish stance. But yesterday, the SPX blasted up to a new record high of 2418.71, so let’s see just how quickly sentiment is turning. (click here for a primer on these 5 sentiment indicators) 1) VIX Spread – Bullish Last Thursday, the VIX spiked up to 16.30, but it’s collapsed back down to 9.83, butting it within range of the the 9.56 generational low on May 9. Last week, the VIX curve nearly inverted, but the 3-month curve is at +4.0, indicating traders not pricing in much near-term volatility. Or in plain English, folks are bullish. 2) CNN Fear & Greed Index – Neutral The Fear & Greed Index is at 56, up from 45 last week. F&G operates on a 1-100 scale, and a reading of 56 is neutral. 3) AAII Sentiment – Bearish The latest AAII Sentiment Survey shows that 32.9% of individual investors are bullish, up from 23.9% last week. This 32.9% reading is below the 38.5% long-term average, and indicates that individual investors are not particulary trusting of the market. 4) CBOE Equity Put-Call – Bullish The CBOE Equity-Put Call ratio was at 0.59 yesterday with a 3-day moving average of 60.3. These numbers are under historical norms, indicating that traders are not buying many put options. Therefore, they are bullish. 5) ISE Sentiment – Neutral The ISE Sentiment Index is at 92 this morning (92 calls bought for every 100 puts). The 10 day moving average is 92.3. These numbers show higher put demand, but they’re actually in-line with recent averages, so I’ll also lump it in as neutral again. Conclusion Out of 5 sentiment indicators, we have: 2 bullish (+2 from last week) 2 neutral (-1 from last week) 1 bearish (-1 from last week) The numbers indicate that we’re seeing much less fear than last week. So the important question to ask is whether we’re on the verge of outright forth. I’m going to guess no. The AAII Sentiment Survey indicates that individual investors are pretty skittish. Typically, at tops, you see the masses wanting to get in. On a related note, a recent Gallup poll showed that just 54% of US adults have participated in the 2009-2017 bull market. From 2001 – 2008, 62% of adults owned stocks. On a second related note, have you noticed the sudden BitCoin craze? Crypocurrencies are going up 5% or 10% a day, which looks like the 1999 dot-com boom all over again. If there’s froth, it’s in BitCoin, not stocks! (not that BitCoin can’t double or triple from here…) Looking forward, I’m wondering if the bears are destined to capitulate on a sudden wave of F.O.M.O. (fear of missing out), driving up SPX to 2500+ in a blowout move.
Continue Reading -->Red Dog Rules Volume 1: Facebook’s Journey to $150
One half of life is luck; the other half is discipline – and that’s the important half, for without discipline you wouldn’t knowwhat to do with your luck.-Carl Zuckmayer Welcome to the first edition of Red Dog Rules, an all-new trading and technical analysis video series by Scott Redler, Chief Strategic Officer of T3 Live. You’re going to learn how Scott attacks the market through real-world case studies and tutorials so you can take your trading to the next level. To Scott, trading is a marathon. It’s not a sprint. That’s why he takes a practical, rules-based approach to the market. Markets change, stocks change, and sectors change. But one thing remains the same — the importance of staying disciplined and grounded.In fact, the most successful traders focus on reducing risk above else. Why? Because one major mistake can knock you out of the game for good. In this edition, Scott gives you an in-depth look at one of the hottest stocks in the market, social media giant Facebook (FB): Watch this video and learn:Why the biggest risk you can take in the market is NOT participatingThe dangers of being lured in by the bears’ negative stories, like the claim that Facebook was set to lose 80% of its users by 2017The technical analysis signals that told Scott Facebook was ready to rockScott’s 3 favorite moving averages rulesHow the cup & handle pattern worksP.S. Don’t forget to sign up for Scott’s video on his favorite trading strategy — the Red Dog Reversal — below!
Continue Reading -->Dynamic vs. Static Risk Management for Swing Trading
Are you one of the many swing traders that takes the same level of risk notwithstanding the market conditions? Do you always trade “a thousand” shares just because that’s an easy number to remember? Do you have a hard time picking the best stocks for swing trading? I will discuss some finer points that might help you to become better at managing risk. First and foremost, the T3 Trained Trader (T3TT) should have a Trading Plan outlining his/her money management rules. Here you should establish parameters such as a “maximum loss per week-month”. When establishing a maximum loss per trade (because no one can know which trade is going to work out), the T3TT has to decide whether he wants to follow a more “static” approach where all the potential losses will be similar, or whether to adopt a more “dynamic” set of guidelines created with the purpose of governing when to be more aggressive, less aggressive, or not active at all. You have to understand the fact that not all market conditions present the same odds for a particular trade. Let’s say, for example, that market “x” is in an up-trend, and has pulled back to support over several days. Today we get a reversal bar, and then the reversal is complete. In this case, the swing trader will likely find several high odds entries both today and tomorrow (depending on the tactics used, many of which are taught in our T3 Technical Strategies Course. The third day comes along, the market continues to climb, and some more entries might be executed. As the market continues to rally, the odds of every new entry following through will diminish, as the probability of a reversal to the downside in market “x” is greater. Based on this scenario, a swing trader might enter into larger positions on days one and two, and might reduce his share lots as the market continues to climb. There will be a time when the market has climbed for 5 or 6 days in a row, and so the T3 Trader will devote more and more of his time to manage already open positions, by selling partial lots and raising stops, instead of being too active in entering new swing positions. (He might be more active in micro trading activities though) Using some modified version of this basic concept, the T3 Trader can implement an intelligent way to participate in the markets, while reducing the risks of getting caught with big positions on a reversal contrary to his positions. Trade Well!
Continue Reading -->How the 3-Bar Rule Can Help You Deal With Failed Setups
Our Trading the Pristine Method® Home Study Course teaches traders a unique approach to trading candlestick price patterns. What make it unique? It is 100% objective and systematic, and eliminates all guesswork from the buying and selling process. We teach identifiable patterns that stocks trade in, and then show the exact strategies of what to do in each stage of a stock’s movement, including how to enter, manage, and exit the trade. That said, not all trades work. No pattern makes money 100% of the time, and the failures must be watched for 3 reasons: 1) To see and capitalize on a “new opportunity” when a pattern fails but immediately sets up again 2) To know how best to manage a position before it fails by evaluating the charts objectively. 3) To help you in disaster management mode in the event you are in a position that has failed. One Failed Pattern we teach is the Three Bar Rule. Whether that means to exit the trade or enter as new opportunity depends on the overall pattern and market environment). Let’s assume you entered a stock with a perfect “quality” price pattern that suggested an immediate move up with bullish market internals. It could have been a T3 Buy Setup (T3BS), a Climactic Buy Setup (CBS), or a T3 Breakout (T3BO), timed with the futures at the 10 a.m. reversal period. The T3 Three Bar Rule states: If the setup is not doing as suggested within three (3) bars, either exit or reduce the position. That begs an important question, “How does one know when the setup is not doing as suggested?” Note that this must be used only in the time frame being used. Some traders will incorrectly bail on a daily setup because the intraday pattern is not moving. They should be using the daily chart to judge the setup. Here are a few questions to ask in considering whether to close a trade early before the stop is triggered: 1. Did the trade violate every single reason for entry? Did it take out major intraday pivot lows? Is it a healthy consolidation that might actually be an opportunity to add to your position? 2. Assess the situation from the standpoint as if you were not in the trade, based on your training. What would you tell a friend about the technical setup? Is the pattern’s “quality” decreasing? For example, are the intraday charts getting very volatile, with overlapping bars, No Follow Through (NFT) to bullish/bearish bars; Breakout Bar Failures (BBF), shakeouts, etc.? 3. How far has the stock already moved? Is the current stop and reward-risk still adequate? 4. Are multiple time frames in alignment? 5. Are market conditions (broader market, sector analysis, and market internals) favorable for the trade direction? 6. Did the stock move with the sector and market internals, or is it lagging, showing relative weakness? 7. What time of day is it? Is it a low volume doldrums summer day with everything going sideways, or is your position underperforming? 8. Is the position distracting you from other trade opportunities? You must overcome the temptation to act prior to gaining information needed out of fear of missing the trade. Selling out of fear that the market will move against you must be fought. You must have the patience and discipline to logically apply the setup. Always have at least two scenarios when entering trades, no matter how bullish or bearish. This will keep you open to other possibilities. Remember, anything can and will happen at times.
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